Britain's banks rode out the latest blow to confidence in the sector today after 15 of the world's biggest institutions were downgraded by Moody's.

Britain's banks rode out the latest blow to confidence in the sector today after 15 of the world's biggest institutions were downgraded by Moody's.

Barclays, HSBC and Royal Bank of Scotland were among those targeted by the ratings agency because of their exposure to the escalating eurozone crisis.

But banks - which had been bracing themselves for the downgrade since February - downplayed the impact, insisting the sector had taken action to ensure they were strong enough to withstand financial shocks.

There are concerns that the move by Moody's will add to funding pressures for credit-hit banks, potentially making it harder for them to borrow money commercially.

RBS criticised the Moody's downgrade as a "backward-looking" change, which it said failed to recognise "substantial improvements" to the group's balance sheet, funding and risk profile.

It estimated the ratings change could mean it would need to find an extra £9 billion in collateral for its debts.

The British Bankers' Association (BBA) assured that UK banks had already made "wide-reaching reforms" and strengthened their balance sheets.

A BBA spokesman said: "They are well capitalised so able to withstand future financial difficulties and have plans in place which will prevent taxpayers having to step in in the future.

"Their exposure to problems in the eurozone is also very limited. Moody's' assessment reflects overall concerns about the current ongoing issues in the eurozone rather than the organisations themselves."

Bank shares avoided heavy falls after the widely-expected downgrades, with Barclays and Royal Bank of Scotland down 1 per cent and HSBC less than 1 per cent lower.

Taxpayer-backed Lloyds Banking Group saw its shares largely unchanged after it was left off the list of Moody's major downgrades.

Its short-term prime rating was unchanged, while Moody's lowered Lloyds' long-term ratings by one notch.

The bank said the result "reflects the substantial progress" in its overhaul following the financial crisis and stressed that the changes would have limited impact on its funding costs.

Antonio Horta-Osorio, group chief executive, said: "I am pleased that Moody's have recognised the substantial momentum we have made in de-risking our balance sheet and delivering on our strategy."

The Moody's downgrades reflect fears that the banks' growth and profit prospects are declining.

And it raised speculation that it could spark a rise in mortgage interest rates.

The Bank of England and the Treasury kick-started an emergency funding facility for banks last week to help free up credit as the eurozone woes threaten another phase in the credit crunch.

Richard Lloyd, executive director of consumer group Which?, said: "For too long banks have taken advantage of the lack of competition on the high street to increase the interest rates charged on mortgages, loans and overdrafts, with over one million consumers seeing their yearly mortgage payments increase by over £300 million with the standard variable rate rises earlier this year.

"This is why we cautiously welcomed the Chancellor's recent 'funding for lending' scheme. But we want to see strong safeguards in place to ensure that banks pass on this cheap credit to consumers."

Other banks affected by the Moody's downgrade last night include French group Credit Suisse, which was the only bank in the group to suffer a three-notch downgrade.

Barclays was among those downgraded by two notches, with others including US firm Morgan Stanley, BNP Paribas, Royal Bank of Canada, Citigroup, Goldman Sachs Group, JPMorgan Chase, Credit Agricole, UBS and Deutsche Bank.

HSBC and RBS were among those to see a one-notch markdown, alongside Bank of America and Societe Generale.

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